Day 8: Escape the 'Thousand Cuts' Trap: Simple Adjustments to Protect Your Trading Capital

My name is Harjot, and I've been trading for 7 years, 5 of which were under the guidance of a seasoned head trader at a prestigious proprietary trading firm. I've learned invaluable lessons from my mentor, Robb, who has 27 years of trading experience.

Now, it's my mission to share my personal experiences and insights to help others navigate the world of trading.

There are so many problems traders face.

Each one at a different moment in their journey.

You think you solved one of your trading issues just to find another waiting for you.

Today, you will address the problem of bleeding your account.

This is a problem you face once you have stopped blowing your account on one trade.

Making money consistently and then losing it all on a few bad trades.

That isn't the scope of todays post but you can vote for it to be written on in depth for the future.

Today you will learn how to survive a huge losing streak.

You have felt this.

You take a trade, it hits your stop loss.

You brush it off.?

You maintain your confidence. You stay composed. You keep your self talk positive.

You are doing good.

Next trade, stop loss.

Okay... this is normal... things just didn't play out in your favour...

Next trade, stop loss...

Now there is confusion in your mind.

You are starting to question yourself but at the same time you are remaining confident.

You continue to take the same setups.

You believe in your strategy. You believe you are being consistent.

You are eyeing the markets like a Eagle. Just watching for your prey.

You are flying high. Soaring, hungry from all the previous losses.

You start seeing a setup. Your entry criteria is lining up. You start charging down towards your target.

You are going to get the kill this time. You are hungry.

You bring all your confidence. You strike.?

You now watch in anticipation. You hold on to your hunt.

It slips, Stop loss.

Now you are cracked on the inside. You remain composed.

You bring yourself to equilibrium.

But... You lie to yourself.

Inside, you are broken. Your confidence is shattered.

If you have been trading long enough, you have gone through this experience.

If you are relatively new, your time will come too (unless you learn from what you are going to learn next)

For the most part, traders are taught to look at risk as a 1 way thing.

Social media heavily promotes 1% risk per trade. Some even 2 or 3%.

These are very sound principles.

But have you ever thought of risking 0.2% per trade?

Risk needs to be looked at as something that serves you.

You can load up more on risk based on many different factors. Maybe your account is in profit so you have a cushion to risk a little bit more, say instead of 1%, you risk 1.5% on a trade. Only because you are playing with some house money. This is a edge in itself.

Or you can load up more risk by pyramiding into a trade that keeps going for you (this is a whole strategy in itself)

Or the market conditions are favourable for your strategy and you know how to identify such conditions so you are able to take more risk because the risk to reward is highly in your favour. Your edge grants it.

Let's forget all that for now. Each one of those statements can be a single lesson on its own.

Your issue is bleeding your account.

Let's solve that problem.

If to make more money you have to risk more. What do you think you have to do to loss less?

Risk less.

This goes against your human nature. When you are losing, you want to make your money back sooner than later.

You cannot accept reducing risk because that means taking longer to recover your losses.

You think you lost money and you are owed.

That is the wrong thinking process of your brain.

You are holding on to what you used to have. Once you lose money, it's gone. It isn't yours.

Your ego/brain thinks it is. Something was stolen from you.

Money is a flow of energy. An exchange of value. Today in your hands, tomorrow in somebody else.

First you want to let go of what is not yours (the money you lost).

Now you can accept reducing your risk.

Let's get practical.?

You have a 10k account. To start you risk 0.5% per trade.

If you get a good start and get your equity to at least a 2% gain. You can bump your risk up to 1%. or even 0.8%. Feel free to experiment and feel it out for yourself.?

Every trader has a unique personality. You must make trading work for you. You must make risk work for you.

Now what if you don't have the best start?

0.5% per trade. Assuming you get 4 losses in a row. All hitting your stop loss.

Now you should be in a drawdown of a little more 2% (including trading fees)

This is your chance to slow down. Shift down your gears.

Go to a 0.3% or 0.2% risk per trade.?

When driving a car, there is a turn ahead, do you speed up or slow down?

At this moment your goal should not be to make your money back. Because the money you lost does not belong to you anymore.

Let it go.

What belongs to you is the money in your trading account. That is still yours.

You want to protect what is yours right now. Not what used to be.

That is like thinking about your ex and all the good times you had together. It's gone. Let it go.

At this point, let's assume you continue to lose trade after trade.?

However, now you are only risking 0.2% per trade. You will survive.

You can step away from the markets and do a big picture analysis of what is going on.

What is the problem. All while still having your account mostly intact.

This is how you get into a car crash and somehow come out with minor scratches to the car instead of a full out damage.

This is simply one way to go about it. A bit practical with how to approach risk.

Because once you get your groove back, it won't be long before you can size up again.?

Smaller size also has the benefits of taking the stress and pressure off you.

Which will only aid in helping you see the market in front of you more clearly.

Thanks, Harjot